Undisclosed Foreign Income
Do you have any amounts of offshore income you haven’t declared to the ATO – perhaps interest from a foreign bank account? Even if it seems like a small amount, you must declare it. International data-sharing arrangements are making your overseas financial affairs increasingly transparent, so don’t get caught out. The ATO is keen to emphasise that its techniques for detecting offshore amounts are becoming increasingly effective. Cross-border cooperation between different tax jurisdictions means your financial information is being shared more than ever before. The ATO is keen to emphasise that its techniques for detecting offshore amounts are becoming increasingly effective. Cross-border cooperation between different tax jurisdictions means your financial information is being shared more than ever before.
• If you’re an Australian resident for tax purposes, you’re taxed on your worldwide income. This means you must declare all foreign income sources in your return.
• If you’re a non-resident, you generally only pay tax on your Australian-sourced income.
Failing to report foreign income can attract penalties and ATO scrutiny of a taxpayer’s broader tax affairs.
TIP: What if you’ve already paid tax on the income overseas? You still may need to declare it to the ATO. However, you may be able to claim an offset for the tax already paid in order to prevent double taxation.
Salary sacrificing loopholes: are you receiving your full benefits?
Most workers understand that their employer must make compulsory super guarantee (SG) contributions of 9.5% of their salary and wages. However, things can get a little tricky when you choose to salary sacrifice.
Under current laws, employees who sacrifice some of their salary in return for additional super contributions may end up receiving less than they expected because of two legal loopholes. Employers may:
• Count the salary sacrifice contributions towards satisfying their obligation to make minimum SG contributions of 9.5%; or
• Calculate their 9.5% contributions liability based on the employee’s salary after deducting sacrificed amounts, rather than the pre-sacrifice salary.
Proposed new laws will close the loopholes by requiring employers to pay compulsory SG contributions at 9.5% of the pre-sacrifice amount of salary (that is, the salary actually paid to the employee plus any sacrificed salary). Further, any salary sacrifice contributions will not count towards the compulsory SG contributions. If passed, new laws will apply to quarters beginning on or after 1 Jul 2020.
Claiming work trips
When a trip is clearly for business purposes only, the rules for deducting your expenses are fairly straightforward. But what happens when you’ve planned a holiday or to catch up with family or friends while you’re travelling?
Assume you travel to London for a two-week trade show and stay a few extra days for sightseeing. If business is the primary purpose of the trip, you can claim the whole cost of the return airfares as a business deduction, because the sightseeing is just incidental. If you have a significantly longer holiday, so the primary purpose of the trip is not just business, you may need to apportion your airfares. And if the primary purpose is clearly private with some incidental work activities, you generally can’t deduct airfares.
Accommodation deductions are limited to the nights that you’re required for the business purpose. In our London example, you couldn’t deduct your accommodation costs for the nights you stayed for sightseeing. This applies even though you could deduct the full airfares.
Sole traders and partners must keep a diary if they travel for six or more consecutive nights, detailing each business activity, the location, the date and time it began and how long it lasted.
If your business runs through a company or trust structure, it’s not compulsory to keep a diary, but it’s strongly recommended.
TIP: For companies, be careful about your business paying for any private part of your travel, as this could have consequences under the “deemed dividend” rules about benefits for shareholders and their associates.
Black Economy: tax gap
Since 1 July 2018, the ATO has coordinated an extensive program of work to tackle the black economy, addressing issues such as:
• Under-reporting income and over-claiming expenses;
• Ensuring businesses meet their employer obligations – so they don’t pay cash in hand, underpay wages, fail to withhold tax or fail to contribute to superannuation;
• addressing illegal phoenixing (deliberate liquidation and reforming of businesses to avoid obligations);
• preventing tax fraud; and
• targeting intermediaries and agents who enable black economy behaviour.
SMSF status will change if annual returns are lodged late
The ATO has warned that from 1 October 2019, if an SMSF is more than two weeks overdue on any annual return lodgment due date, and hasn’t requested a lodgment deferral, the ATO will change the SMSF’s status on Super Fund Lookup (SFLU) to “Regulation details removed”.
The ATO is taking this approach because non-lodgment of SMSF returns indicates that retirement savings may be at risk. This status will remain until any overdue lodgements have been brought up to date.
SMSF & Insurances
It’s possible to hold various types of insurance through your superannuation fund, including death, total and permanent disablement (TPD) and temporary incapacity.
If you’re an SMSF trustee, you’re in charge, so there are a few things to keep in mind in relation to insurance:
• As part of your SMSF’s investment strategy, you’re required to consider (and regularly review) whether the fund should hold insurance cover for its members.
• Not every type of insurance can be held in superannuation. For example, trauma policies aren’t allowed, and there are restrictions on some types of TPD policies. Seek professional advice before choosing your policies.
• You should also seek advice about the tax consequences of holding insurance in the fund, including deductibility of premiums and how life insurance proceeds might affect the taxation of your death benefits.
ATO to step-up enforcement
The ATO will begin contacting employers who have not met their Superannuation Guarantee obligations and will be sending letters to around 2,500 employers. The step-up in enforcement by the ATO is as a result of sophisticated data matching & the introduction of Single Touch Payroll (STP).
With the September quarter deadline just under a week away, we remind employers of their payment obligations:
• to make payment before 28 days after each quarter
i.e. 28 October, 28 January, 28 April, 28 July.
Employers who do not pay the correct amount by the relevant deadline are liable to pay an SG charge to the ATO.
Amnesty Back on the table
The government has reintroduced the proposed Superannuation Guarantee amnesty into Parliament, which lapsed as a result of calling the last election.
The legislation provides for a once off amnesty to encourage employers to self-correct historical Super Guarantee non-compliance without penalty.
Should the Bill be passed, the proposed rules provide for:
• The amnesty period to end 6 months from date the bill receives royal assent;
• The amnesty to cover the period between 1 July 1992 to 31 March 2018;
• The amnesty to allow employers to claim a tax deduction for payment of contributions made during the amnesty period; and
• To remove the administrative component & penalty.
Trood Pratt & Co Wealth Services
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